ABOUT DOING BUSINESS: MEASURING FOR IMPACT
incomplete, just as the Doing Business data are limited in scope. It is useful when it aids judgment, but not when it supplants judgment. Since 2006 Doing Business has sought to provide 2 perspectives on the data that it collects: it presents “absolute” indicators for each economy for 10 of the 11 regulatory topics that it addresses, and it provides rankings of economies for these 10 topics, by topic and also in the aggregate. Judgment is required in interpreting these measures for any economy and in determining an economically sensible and politically feasible path for regulatory reform. Reviewing the Doing Business rankings in isolation may reveal unexpected results. Some economies may rank unexpectedly high on some topics. And some economies that have had rapid growth or attracted a great deal of investment may rank lower than others that appear to be less dynamic. As economies develop, they may add to or improve on regulations that protect investor and property rights. Many also tend to streamline existing regulations and prune outdated ones. One finding of Doing Business is that dynamic and growing economies continually reform and update their business regulations and the implementation of those regulations, while many poor economies still work with regulatory systems dating to the late 1800s. For reform-minded governments, how much the regulatory environment for local entrepreneurs improves in an absolute sense matters far more than their economy’s ranking relative to other economies. To aid in assessing the absolute level of regulatory performance and how it improves over time, this year’s report again presents the distance to frontier measure. This measure shows the distance of each economy to the “frontier,” which represents the highest performance observed on each of the indicators across all economies included in Doing Business since 2003. At any point in time the distance to frontier measure shows how far an economy is from the highest performance. And comparing an economy’s
score at 2 points in time allows users to assess the absolute change over time in the economy’s regulatory environment as measured by Doing Business, rather than simply the change in the economy’s performance relative to others. In this way the distance to frontier measure complements the yearly ease of doing business ranking, which compares economies with one another at a point in time.
challenges and by identifying good practices and lessons learned. Despite the narrow focus of the indicators, the initial debate in an economy on the results they highlight typically turns into a deeper discussion on their relevance to the economy and on areas where business regulatory reform is needed, including areas well beyond those measured by Doing Business.
Doing Business uses a simple averaging approach for weighting component indicators and calculating rankings and the distance to frontier measure. Other approaches were explored, including using principal components and unobserved components.16 They turn out to yield results nearly identical to those of simple averaging. In the absence of a strong theoretical framework that assigns different weights to the topics covered for the 189 economies by Doing Business, the simplest method is used: weighting all topics equally and, within each topic, giving equal weight to each of the topic components.17
Part of a broad approach to policy reform
Each topic covered by Doing Business relates to a different aspect of the business regulatory environment. The rankings of each economy vary, often substantially, across topics, indicating that strong performance by an economy in one area of regulation can coexist with weak performance in another. A quick way to assess the variability of an economy’s regulatory performance across the different areas is to look at the topic rankings (see the country tables). Guatemala, for example, stands at 79 in the overall ease of doing business ranking. Its ranking is 13 on the ease of getting credit, 23 on the ease of registering property and 34 on the ease of getting electricity. At the same time, it has a ranking of 116 on the ease of trading across borders, 145 on the ease of starting a business and 157 on the strength of investor protections (see figure 1.3 in the overview).
HOW GOVERNMENTS USE DOING BUSINESS Doing Business offers policy makers a benchmarking tool useful in stimulating policy debate, both by exposing potential
Many of the Doing Business indicators can be considered “actionable.” For example, governments have direct control over the minimum capital requirement for new firms. They can invest in company and property registries to increase the efficiency of these public agencies. They can improve the efficiency of tax administration by adopting the latest technologies to facilitate the preparation, filing and payment of taxes by the business community. And they can undertake court reforms to shorten delays in the enforcement of contracts. But some Doing Business indicators capture procedures, time and costs that involve private sector participants, such as lawyers, notaries, architects, electricians or freight forwarders. Governments may have little influence in the short run over the fees these professions charge, though much can be achieved by strengthening professional licensing regimes and preventing anticompetitive behavior. And governments have no control over the geographic location of their economy, a factor that can adversely affect businesses. While Doing Business indicators are actionable, this does not necessarily mean that they are all “action-worthy” in a particular context. Business regulatory reforms are one element of a strategy aimed at improving competitiveness and establishing a solid foundation for sustainable economic growth. There are many other important goals to pursue— such as effective management of public finances, adequate attention to education and training, adoption of the latest technologies to boost economic productivity and the quality of public services, and appropriate regard for air and water quality to safeguard people’s health. Governments have to decide what set of priorities best fits the needs they face. To say
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